Even if hiring improved last month, January's jobs report Friday should paint a picture of employers who remain hesitant to add to their ranks in a sluggish and uncertain economy.
Economists expect 160,000 non-farm payrolls were added in January and the unemployment rate stayed unchanged at 7.8 percent, according to Thomson Reuters. That would be just a tiny improvement over the 155,000 jobs added in December.
"We set a decent pace of hiring, roughly 150,000 a month for two years now," said Stephen Stanley, chief economist at Pierpont Securities."It's not like were declining or flat-lining. We are creating jobs, but it's not what you expect in a recovery. We haven't had that burst of hiring. We've switched from recession to a mature level of expansion."
Unseasonably warm weather early in the month may have added slightly to the ranks of construction workers, and there may have been additional hiring in manufacturing. "We would have expected the service sector to add the bulk of jobs with modest gains in manufacturing and construction," said Dean Maki, chief U.S. economist at Barclays. He expects 150,000 nonfarm payrolls, and 155,000 if the public sector layoffs were not included.
Besides the 8:30 a.m. ET jobs report, other data Friday include consumer sentiment at 9:55 a.m., and ISM manufacturing and construction spending at 10 a.m. Monthly auto sales are also expected.
The January jobs report comes on the heels of a stunning report of a 0.1-percent contraction in fourth-quarter GDP, the first decline since second quarter 2009. That decline came largely from a big drop in defense expenditures and a decline in inventories. It's unclear how those numbers will show up in employment.
"I wouldn't expect the downside surprise on GDP to have a near-term impact on payroll growth…It's possible, but it's not clear whether the lesser spending will show up immediately as job cuts. It may again be fewer things ordered and eventually that does affect the defense contractors and how many people they employ," Maki said. "Usually they don't lay off government employees quickly when spending gets cut."
Economists said the decline in inventories could actually help hiring in the future because workers will be needed to help rebuild inventories.
(Read More: Industries That Hired the Most in 2012)
There have been some signs that hiring improved slightly in January. The ADP payroll report showed a gain of 192,000 private-sector jobs in January, and the four-week average forunemployment claims, at 352,000, is at a four-year low. Small business hiring may have also made slight gains.
Of the 192,000 jobs, ADP said 115,000 workers were added to small businesses with fewer than 50 employees, and the rest were added to medium-sized businesses. Large companies, with 500 or more workers, actually trimmed 2,000 jobs. According to the National Federation of Independent Businesses, its small business members increased hiring at the best level since April 2012, but the gain is still small. The NFIB said the average change in employment per firm increased to 0.09 from 0.03 workers.Transportation, professional services, finance insurance and real estate were the only sectors reporting gains.
Seasonal factors make January one of the more difficult months to read, but some of those factors may have actually added to the jobs number, said Diane Swonk, chief economist at Mesirow Financial. Her expectations is for 190,000 jobs, and she says earlier than usual holiday-related layoffs in retail may have helped the number. Those workers left the workforce in December as consumers pulled back on holiday spending in December ahead of the "fiscal cliff."
She expects to see additional jobs in construction, with some warm weather effect on hiring early for several weeks, before the onset of more seasonal weather at the end of January. Housing may have also been responsible for jobs on another front. "They're gearing up in the financial services industry to do mortgages again. They're hiring again," Swonk said.
(Read More: Plan on Working Past Age 65? You'll Have Company)
Hurricane Sandy may also have been behind some additional workers in the northeast, particularly in construction.
Stephen Stanley, chief economist at Pierpont Securities,expects to see a pickup in temporary hiring, and that should continue as the year goes on. But he does not expect the pace of overall hiring to pick up anytime soon. His January forecast is for 170,000 jobs and unemployment rate of 7.8 percent
"What you're going to see is a lot of companies that are cautious and hesitant. Where they might ordinarily have hired people permanently, they might go to contract workers as a way to hedge their bets. As we get closer to the end of the year, people are looking at the mandates associated with ," he said.
Not only are employers worried about health care, but he said they remain concerned about taxes and regulation. The fiscal cliff concerns have now given way to a focus on the "sequester," automatic spending cuts that take place March 1 if Congress does not act. Half of the cuts would be in defense.
"It feels to me like the government is a pretty big dampener on growth right now," said Stanley.
Stanley, like many economists, dismissed the fourth-quarter GDP number as a one-off, but he added some growth into his first-quarter estimate, taking it to 3 percent. "There's not a lot of substance there.There's a lot of statistical fluff," he said.
Economist also expect to see benchmark revisions of about 30,000 additional jobs added to payrolls each month from April 2011 to March 2012. That revision is expected but it could affect how the report is received by the market — especially if it were paired with an upside surprise in the January number, Maki said.